Nvidia stock falls as COVID shutdowns in China weigh on outlook

Nvidia Corp. shares fell in Wednesday’s extended session after the COVID shutdowns in China and the war in Ukraine trimmed the chipmaker’s current-quarter outlook by half a billion dollars, while the company reported record results.

For the second or current fiscal quarter, Nvidia NVDA,
forecast revenue of $7.94 billion to $8.26 billion, while analysts polled by FactSet forecast average revenue of $8.4 billion. The company said “Russia and the COVID lockdowns in China” are responsible for an expected loss of sales of about $500 million in the second or current quarter.

This is similar to Cisco Systems Inc. CSCO,
which has reported earnings over the past week and how Nvidia has a quarter ending in April. Cisco found it broad based after Chinese authorities locked down Shanghai from March 27, severely affecting its ability to source components. As a result, Cisco issued a poor outlook and shares had their worst day in more than a decade.

“We estimate that the impact of lower revenue in Russia and China will impact our gaming sell-in by $400 million in the second quarter,” said Colette Kress, Nvidia’s chief financial officer, when speaking to analysts . “Additionally, we estimate that the lack of sales to Russia will have a $100 million impact on the data center’s second quarter.”

Gaming revenue rose 31% from $2.76 billion to a record $3.62 billion, while analysts polled by FactSet were expecting Nvidia gaming revenue of $3.46 billion had. However, gaming revenue is expected to decline in the current quarter, further weighing on Nvidia’s prospects.

“As we anticipate continued impact as we prepare for a new architectural transition later in the year, we expect gaming revenue to decline sequentially in the second quarter,” Kress said. “Channel inventory has almost returned to normal and we expect it to remain at this level in the second quarter.”

“We continue to believe that our end demand remains very strong,” Kress told analysts, adding that gaming revenue is expected to increase year-on-year. Nvidia reported $3.06 billion in gaming revenue for the second quarter of 2021.

“But overall Q2 gaming is going down from last quarter vs. first quarter that probably going down in the teens as we try to get through some of these lockdowns in China that are holding us,” Kress said. “So overall, gaming demand is still strong: we expect final demand to increase year-on-year in Q2.”

Nvidia shares fell more than 7% after the close after rising 5.1% in the regular session to close at $169.75.

Meanwhile, Nvidia’s data center revenue rose 83% in the first quarter to a record $3.75 billion, up from $2.05 billion in the year-ago period, while analysts had expected $3.6 billion. On the call, Kress told analysts the company sees “continued momentum going forward” and that “customers continue to have supply constraints in relation to their infrastructure needs.”

Read: The End of the One-Chip Miracle – Why Nvidia, Intel and AMD Valuations Have Taken a Massive Upheaval

“All these different factors, be it just the industry recognition of the importance of AI, the transformative nature of these new AI models, recommender systems, big language models, conversational AI, the thousands of companies around the world that are using Nvidia AI in the Cloud is driving demand for public clouds,” Nvidia Chief Executive Jensen Huang told analysts on the conference call. “All of these things are driving the growth of our data center, and as such, we expect data center demand to remain strong.”

Nvidia reported net income of $1.62 billion, or 64 cents a share, in the first quarter, compared to $1.91 billion, or 76 cents a share, in the year-ago period. Adjusted earnings, which exclude stock-based compensation expense and other items, were $1.36 per share, compared to 91 cents per share in the prior-year period. All numbers are adjusted for last year’s 1:4 stock split.

Revenue increased to a record $8.29 billion from $5.66 billion in the same quarter last year.

Analysts had forecast $1.30 per share on sales of $8.12 billion, based on Nvidia’s guidance of $7.94 billion to $8.26 billion.

Read: Why semiconductor stocks are ‘almost uninvestable’ despite record earnings amid global tightening

Nvidia’s results follow those of major chipmakers like Advanced Micro Devices Inc. AMD,
Intel Corp. INTC,
and Qualcomm Inc. QCOM,
while Broadcom Ltd. AVGO,
scheduled to report on June 2nd.

Over the past 12 months, Nvidia shares are up 8% while down nearly 50% from its record closing high of $333.76 on Nov. 29. In comparison, the PHLX Semiconductor Index is SOX,
is down 8% over the past 12 months, the S&P 500 Index SPX,
is down 5% and the Nasdaq Composite Index COMP,
is reduced by 16%.

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